All About the Oil
Back in the early eighties I was one of those millions glued to the tv watching Dynasty. I remember disliking Linda Evans's flat ass so much I would use her whiny scenes to go to the kitchen for munchies; but Joan Collins, oy, that was a dame. One also may recall that the show was the launching pad for one of the cheeriest lasses in show business, Heather Locklear.
But, weirdly enough, the one thing that always stuck with me was the business end of the show: oil. I don't know how badly I'm mis-remembering, but if I'm not mistaken one of the story lines was about shale oil. The idea about pulling oil out of rock and breaking free of the vicious talons of OPEC smacked of fantasy, but unbeknownst to me it was apparently being looked into in the real world. (Here's more info on the show's first season and the oil business. Scroll to 'Facts of the Case'-second paragraph.)
In later years I had discussions with my good friend Jim Picerno (who writes on things economic at the Capital Spectator) about this, and he assured me that the technology was unfeasible, owing to the high cost of extracting the oil and the dirty mess to be cleaned up afterwards.
Today two articles come to my attention that to me seem amazing good news in light of the current world situation, made especially clear now that a major supply of domestic oil is at least temporarily off-line in the Gulf.
The first (via Instapundit) is from the Rocky Mountain News reporting major advances from the Shell Oil Company in extracting the black goo from shale. With older technology it was estimated that oil would have to sustain $30-45 a barrel to make economic sense for extraction from shale. Today prices hover in the high sixties to low seventies, and the newer method, because of its cleanliness and low 'energy-in-to-energy-out' ratio, would drop the ultimate cost of extraction even lower. That's good news.
Better news is the method itself. In the bloody fight over ANWR the argument against drilling mainly consisted of the fear of a spill that would damage the critters and surrounding environment. In that regard the new Shell technology looks incredibly safe, without pitting the politics of energy independence and national security against those of the environmentalists. The new extraction method uses heat to separate the oil from the rock right there in the ground,
Drill shafts into the oil-bearing rock. Drop heaters down the shaft. Cook the rock until the hydrocarbons boil off, the lightest and most desirable first. Collect them
and:
"…how do you keep the hydrocarbons from contaminating ground water? Why, you build an ice wall around the whole thing…. Next you take the water out of the ground inside the ice wall, turn up the heat, and then sit back and harvest the oil until it stops coming in useful quantities"
The bestest part yet is that we've got plenty of the stuff right here in the good old usofa. It's been suggested that artificially jacking up the price of oil would encourage development of alternative energy sources. This of course would screw up the market, and at the very least put us at a disadvantage to other countries that didn't jack up prices. One of the reasons the US economy remains strong is that other countries artificially inflate fuel prices with onerous taxes (and uh, where is the European alternative fuel car?). Now that prices are reacting to real market input, both shale oil and alternative energy have a chance. Just as it should be.
But let's address reasonable fear of falling prices that would put the oil industry in a sticky wicket were they to spend big and get hammered, like in the eighties. For that and more we go to India:
According to the Times of India there is "enough oil trapped in shale and coal deposits in Ass-am and Arunac-hal Pradesh to produce 140 million tonnes per year for 100 years."
Compounding the good news is that it would enable India to convert 'dirty' coal already mined in the province, which has a substantial amount of pollutants, into 'clean' high grade oil.
Assam coal is, technically, a sort of solid petroleum deposit (it is a marine sediment like oil, not a carbonised forest like conventional coal). This makes it especially suitable for conversion to oil. Assam coal has much sulphur, so it is a high-pollution fuel for thermal power. But coal liquefaction yields ultra-clean oil, leaving behind sulphur as a by-product that can be used for fertilizer manufacture…. Coal-mine rejects (containing more shale than coal) already lie piled up at mine-heads in Assam, providing ready-made material for a shale oil project.
This 'clean' extraction of high-grade oil and usable by-product is possible using 'older' readily available technology.
Local politics are just as important in India as they are in the US. And as with US concerns over the environment, it turns out the political ramifications of shale oil extraction in Ass-am province are also positive:
Over 90% of OIL's staff [Oil India Ltd.] are Assamese, so ULFA and other militant outfits are unlikely to paralyse such a project with bandhs.
With the spectacle of knuckleheads in Iraq constantly trying to disrupt the oil infrastructure, the lesson here is to mollify the local hotheads.
The geopolitical ramifications of acting on this new technology are staggering. The importance of the Middle East tyrants would dissipate to nil, transportation costs (at least in the US) would drop drastically, and India, the world's largest functioning democracy, could replace the medieval Saudi empire as the exporter of choice for much of the world. (The top three US exporters are, in order: Canada, Mexico and Saudi Arabia). And, with a virtual doubling (or more) of the world's oil supply, prices would eventually drop. Which is where we address those oil company investment fears:
To attract bidders and ensure again a sudden dip in future oil price, the government should guarantee a floor price of $35-40/barrel. In return for such a guarantee, the government could ask for a 50% share of any price hike above $60. This would make the project attractive for both bidders and guarantor.
Applicable to the US, this arrangement (or something like it) could be for a limited time until the capital costs of paying for the investment in infrastructure were offset, and could be further tied to requirements to fund development of alternative fuel sources at unaffiliated companies (with appropriate profit sharing agreements) to satisfy the Greens when the money was good.
Yes, I can already hear the arguments of gluttony, sloth and free ice cream for multinationals, but the upside I think is well worth fighting for. Here's for a return to the go-go eighties, more monstrous SUVs and maybe a new Dynasty TV series in High Definition with a new Joan Collins. Maybe Salma Hayek could run the company this time. Yeah, that's the ticket.
